Foxconn, the mega-manufacturer behind many popular gadgets, posted a $218.3 million net loss for 2010 yesterday. While the company had previously predicted lower earnings amid suicide-related wage increases and welfare costs, the reported figure is still worse than analysts' estimation of around $202 million, which also far outweighs the prior year's $38.6 million profit. Foxconn puts the blame on higher consolidated income tax and increased competition, as well as "cost streamlining actions" -- a reference to the ongoing relocation and expansion plans, which are also the outcome of the Chinese suicides -- that took longer than expected and led to increased spending along with higher manufacturing overhead. As for 2011, Foxconn said it'll "take decisive actions to conclude our capacity relocation, optimize our cost structure and return to profitability." Of course, further losses could accelerate plans to increase prices, which could ultimately put everyone in a lose-lose situation if Foxconn can't compete. Excerpts from the financial report can be found after the break.

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MANAGEMENT DISCUSSION AND ANALYSIS

Review of Results and Operations

The year 2010 was an extremely difficult year for us. We saw major changes in the handset ecosystem triggered by entry of new players, introduction of new software and applications, as well as emergence of new business models. Market dynamics shifted drastically and created tough challenges for some industry players as well as the Company.

Despite our continual efforts to further diversify customer base and sources of revenue, the operation results for the Company concluded less than satisfaction. Revenue for the year 2010 was US$6,626 million, which represents a change of US$588 million, or 8.2% less than the prior year revenue of US$7,214 million.

The intensifying market share struggles among global OEM brands had made the global handset EMS market difficult and caused pricing pressure for the Group's products. Higher manufacturing overhead resulting primarily from lower utilization of facilities and relocation, changes in product mix, impairment losses, continued long-term investment in research and development activities as well as higher consolidated income tax also affected our financial performance. Loss for the year 2010 attributable to equity holders of the Company was US$218 million, representing a decline of 659% over the profit for prior year amount of US$39 million. Basic loss per share for the year 2010 were US3.06 cents.

In 2010, we continued to execute our capacity re-location programs, which commenced in the latter part of 2008. These efforts were set out to right size the cost and scale of our operations in order to cope with the challenges in our business. In PRC, we continued to focus on expansion in Langfang, Beijing and Tianjin, while reducing our exposure in the higher cost areas. We initiated discussions with Hon Hai group companies to transfer some less utilized assets to satisfy their growing demand and trim down our fixed costs. Outside of the PRC, we also reviewed our local business opportunities and constantly looked to improve profitability of our various sites. Some of these cost streamlining actions took longer than we had expected and thus created unfavorable impact to our financial performance. Relocation and downturn of our business also generated asset impairments that hit our bottom line.

While the cost optimization efforts persisted, we did not slow down our R&D investments. Our investments in design engineering resources for smart phones started to see good progress in 2010. It is our belief that we have built respectable capabilities in this area which will help our customers tremendously in enriching their product portfolio and shortening their products' time to market. Smart phones have generated strong growth momentum in the market and we believe our investments in this area will prove to be vital for our future.

Outlook

Looking ahead to 2011, our alarming setback in 2010 has created a sense of urgency in the organization. We need to change as the market is changing and our customers are changing. We need to take decisive actions to conclude our capacity re-location, optimize our cost structure and return to profitability. As part of the efforts for resources consolidation, we have discussed with Hon Hai group to sell our Taiyuan legal entity and its assets to them. Subject to independent shareholders' approval and completion of the transaction, we believe it will help us in reducing our fixed costs for operation while allowing Hon Hai to further expand in the Taiyuan area. We need to serve our existing customers better and approach more new customers. As smart phones become the mainstream of the market, we believe our end-to-end solutions from design to manufacturing and services put us in a leading position in the market place.

Employees

As at 31 December 2010, the Group had a total of 126,687 (2009: 118,702) employees. Total staff costs incurred during the year 2010 amounted to US$565 million (2009: US$485 million). The Group offers a comprehensive remuneration policy which is reviewed by the management on a regular basis.